Why Trump’s Tax Reform Will Spark Continued Small Business Growth
When President Donald Trump signed the Tax Cuts and Jobs Act on December 22, 2017, the new legislation was met with mixed reviews. In today’s volatile and highly partisan political environment, it’s no surprise that some celebrated it as a landmark accomplishment while others criticized the plan as possessing gaping holes.
From where I stood, as the CEO of sweetFrog Frozen Yogurt, I was delighted that the new tax was signed into law. In fact, I was proud to play a small role in the process, as I had asked for much-needed tax reform in a November 2017 Op-Ed that ran in Virginia Business. I firmly believed that small business owners needed tax reform to thrive, and I was happy to see our government work together to pass mission critical legislation.
Now, regardless of what you think of President Trump as a man and a leader, I’d like to offer some reassurance that the Tax Cuts and Jobs Act will help small-business owners build on the fantastic momentum generated by the American economy in 2017. The stock market is up, jobs are up, sales are up, and this tax reform may help small business owners do even better in 2018.
Here are four reasons why I believe Trump’s tax reform will provide economic jet fuel for small business owners from coast to coast:
Tax rates have been reduced.
As you likely are aware, small businesses will be receiving a deduction of 20% for qualified business income. But, back in the day (that is, before December 22, 2017), income from a small business would pass through to the proprietor on their own taxes, and these individuals were sometimes saddled with income tax rates as high as 39.6%.
The new tax rates are certainly fairer to the business owner, which should encourage more people to take the leap and start their own business. There have always been countless reasons that interested entrepreneurs have wanted to join the sweetFrog family, but, at the same time, I can’t help but think that we and every national franchise now have another selling point. We can remind interested owners that they’ll pay a lower rate on their taxable income than they would have if they had purchased a franchise a year earlier.
But, that deduction does more than just help the business owner. It helps the business itself, and now owners will have more money freed up to hire more people and to invest more in infrastructure.
Businesses can now immediately deduct the cost of new equipment.
Before this new tax plan went into place, a business owner would have taken a depreciation on new equipment purchased when filing taxes, and then they’d apply the tax benefit throughout the next several years. So, there were economic benefits to new equipment, but it was parsed out in a way that business owners never really felt much economic relief.
Now, business owners get the deduction right away, making investments in technology and machinery much more appealing—and the more they can invest in their infrastructure, the more efficient they become. The more efficient their operations are, the more profits they make. And, more profits mean higher wages for employees, a greater percentage of earnings being invested back into the business and increased efforts to give back to the local community.
Businesses will spend less on tax compliance.
A more fair and simple tax code means that small businesses will spend less time and money on tax accounting. Up until now, according to the National Federal of Independent Business, small businesses have spent “between 1.7 billion to 1.8 billion hours on tax compliance and $15 billion to $16 billion on compliance costs” every year. Those numbers are unsustainable. Now, businesses have a fighting chance at reversing what’s been a financially devastating trend.
And, the savings will snowball.
What I think a lot of people miss is how beneficial this tax reform will be over the long haul. J.P. Morgan’s CEO Jamie Dimon said it well in a recent interview with CNBC: “I can’t believe that people think having an uncompetitive tax system is a good thing. The real benefit comes over time. Competitive taxes [will lead to] more capital, more jobs, more companies investing here.”
And, we’re already seeing evidence of that. Apple, for instance, recently announced that it would bring back most of the $252 billion in cash that it held abroad and said it would make a one-time tax payment of $38 billion on the repatriated cash. Meanwhile, the aforementioned J.P. Morgan has said it will spend $20 billion over the next five years to raise hourly pay for employees and would be opening branches in new U.S. locations.
In short, there has been a lot of talk that the Tax Cuts and Jobs Act has been more about giving back to billionaires and corporations—not the majority of people. But, the last I checked, businesses of all sizes are comprised of human beings working together to create something we can’t accomplish on our own. And, as the positive ramifications of the tax plan are felt, new jobs become available and wages go up, it’ll be clear that even the tax cuts directed at businesses are actually helping people.
If early decisions by major national brands are any indication, what we create with those tax cuts, I have no doubt, will be something amazing that benefits the American people, hopefully giving countless people the confidence to launch their first (or next) business.